Smart Climate Policy and the Green Economy
Michael G. Morris
Chairman, President and CEO
American Electric Company
Addressing Climate Change
Protecting the Customer and The Planet
- The allocation, rather than auction, of emissions allowances in a cap-and-trade system would reduce electricity price increases. Under cap-and-trade, a national limit on greenhouse gas emissions is established and, over time, that cap is lowered. To implement the program, the federal government would create credits (known as allowances or permits to release a certain amount of GHGs) for regulated facilities, adding up to the total emissions allowed under the cap.
- An effective “collar” on the price of allowances would reduce price volatility. This collar should have both a moderate floor and a moderate ceiling to protect consumers and the economy from wildly oscillating prices. The collar would come into play when the market price of allowances either exceeds the maximum level or falls below the minimum. It’s a straightforward approach that would promote cost certainty and protect consumers and the economy from price volatility and possible market manipulation. Once advanced climate technologies are widely available and commercially deployable, the collar could be phased out.
- Legislative targets and timetables that are reasonable and aligned with the availability of climate-friendly technologies reduce costs. Technologies for energy efficiency, the Smart Grid, renewables, advanced nuclear and coal, and electric transportation all will play a role in reducing carbon emissions. Some of these technologies are currently available, albeit at a higher cost than conventional ones. Others, like carbon capture and storage systems for coal-based plants, are the focus of extensive R&D but need further development. The technologies have different time horizons, but all are critical to the dual goals of reducing GHGs and maintaining a reliable, affordable electricity supply. As Congress considers climate change legislation, compliance dates for emissions targets should correspond to the broad availability of these technologies. Keeping technology and timetables in synch will temper the increase in compliance costs and help keep electricity prices in check.
- Flexibility in developing offsets helps reduce cost increases. Offsets are domestic and international programs that reduce, avoid or sequester GHG emissions and thereby “neutralize” a portion of a utility company’s emissions. The offsets generate allowances that help companies meet a percentage of their compliance obligation and reduce price increases for customers. In smart legislation, the types of offsets would be wide ranging, including such “off-system” activities as energy-efficiency programs and forest conservation, and such “on-system” initiatives as efficiency improvements for transmission and distribution lines.
- Look at climate change as a global issue so that we can protect jobs and the economy. Climate change cannot be addressed by the U.S. alone. A smart climate policy should engage developing countries in reducing their GHG emissions. The International Energy Agency predicts that global energy-related CO2 emissions will increase 45% between 2006 and 2030, and that emissions from China, India and the Middle East will account for more than 75% of that increase. In 2008, China surpassed the U.S. as the world’s biggest emitter of CO2 from power generation, according to the Center for Global Development.
The Full Suite: Energy Efficiency
- encourage investments in energy efficiency;
- have the ability to recover energy efficiency costs; and
- provide incentives to promote efficiency that are similar to incentives for building new infrastructure.
Chairman, President and CEO
Carbon Capture and Storage
Djalma Bastos de Morais
Chief Executive Officer
Advanced Nuclear Technologies
Thomas R. Kuhn
Edison Electric Institute
The Electric Future